SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
THE LEATHER FACTORY, INC.
-------------------------
(Name of Registrant as Specified in Its Charter)
----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[ X ] No fee required.
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[ ] Check box if any part of the fee is offset as provided by Exchange
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4) Date Filed:
THE LEATHER FACTORY, INC.
3847 EAST LOOP 820 SOUTH
FORT WORTH, TEXAS 76119
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TIME AND DATE 10:00 a.m. local time on Wednesday, May 26, 2004
PLACE Wyndham Hotel, Hall of Fame Room
1500 Convention Center Drive, Arlington, TX
ITEMS OF BUSINESS (1) To elect directors
(2) To consider such other business as may properly come
before the meeting
ADJOURNMENTS AND Any action on the items of business described above may
POSTPONEMENTS be considered at the time and on the date specified
above or at any time and date to which the annual
meeting may be properly adjourned or postponed.
RECORD DATE You are entitled to vote only if you were a shareholder
of common stock at the close of business on April 20, 2004.
VOTING YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO
ATTEND THE ANNUAL MEETING, WE ENCOURAGE YOU TO READ THIS
PROXY STATEMENT AND SUBMIT YOUR PROXY OR VOTING
INSTRUCTIONS FOR THE ANNUAL MEETING BY COMLETING,
SIGNING, DATING AND RETURNING YOUR PROXY OR VOTING
INSTRUCTION CARD IN THE PRE-ADDRESSED ENVLEOPE PROVIDED.
FOR SPECIFIC INSTRUCTIONS ON HOW TO VOTE YOUR SHARES,
PLEASE REFER TO THE SECTION TITLED "QUESTIONS AND
ANSWERS" IN THIS PROXY STATEMENT AND THE INSTRUCTIONS ON
THE PROXY OR VOTING INSTRUCTION CARD.
Please advise the Company's transfer agent, Securities Transfer Corporation,
2591 Dallas Parkway, Suite 102, Frisco, Texas 75034, of any change in your
address.
By Order of the Board of Directors,
/s/ William M. Warren
William M. Warren
General Counsel and Secretary
This notice of annual meeting and proxy statement and proxy card are being
distributed on or about April 23, 2004.
THE LEATHER FACTORY, INC.
3847 EAST LOOP 820 SOUTH
FORT WORTH, TEXAS 76119
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 26, 2004
To our Stockholders:
I am pleased to invite you to attend the annual meeting of stockholders of The
Leather Factory, Inc. to be held on Wednesday, May 26, 2004 at 10:00 a.m., local
time, at the Wyndham Hotel, Hall of Fame Room, 1500 Convention Center Drive,
Arlington, Texas.
At the annual meeting, after we vote on the proposals described in this proxy
statement, we will present a brief report on the past year for the company, as
well as an overview of our plans for the upcoming year and beyond. As always,
we will conclude the meeting by inviting you to ask questions and make comments.
Your vote is important. Whether or not you plan to attend the annual meeting, I
hope you will vote as soon as possible. Voting now by written proxy will ensure
your representation at the annual meeting regardless of whether you attend in
person.
On behalf of the board of directors, I would like to express our appreciation
for your continued support of The Leather Factory, Inc. We look forward to
greeting as many of our stockholders as possible at this year's meeting.
Sincerely,
/s/ Wray Thompson
Wray Thompson
Chairman and Chief Executive Officer
QUESTIONS AND ANSWERS
WHY DID I RECEIVE THIS PROXY STATEMENT?
We are mailing this proxy statement to everyone who was a stockholder of record
of our company on April 20, 2004. Only stockholders of record on the close of
business on this date are entitled to vote at the meeting. The purposes of this
proxy statement are:
- To let our stockholders know when and where we will hold our annual
stockholders' meeting;
- To provide detailed information about the directors who will be voted on
for re-election; and
- To provide updated information about our company you should consider in
order to make an informed decision at the meeting.
At the close of business on the record date, there were 10,555,661 shares of our
common stock outstanding and entitled to vote. There were approximately 630
holders of record. Each holder of record is entitled to one vote per share. To
achieve a quorum at the meeting, a majority of our outstanding shares must be
present either in person or by proxy.
WHAT WILL OCCUR AT THE ANNUAL MEETING?
First, we will determine whether enough stockholders are present at the meeting
to conduct business. A stockholder will be deemed to be "present" at the
meeting if the stockholder is:
- Present in person, or
- Not present in person but has voted by proxy prior to the meeting.
According to our bylaws, holders of at least a majority of our outstanding
shares must be present at this year's meeting in order to conduct the meeting.
If holders of fewer than a majority of our outstanding shares are present at the
meeting, we will reschedule the meeting. A new meeting date will be announced
at the meeting.
After each proposal has been voted on at the meeting, we will discuss and take
action on any other matter that is properly brought before the meeting. Also,
some of our officers will report on our recent financial results and our current
operations.
If enough stockholders are present at the meeting to conduct business, then we
will vote on the proposal to re-elect the director nominees as members of our
board of directors for the upcoming year. Our board of directors has approved
this proposal and is now soliciting your vote on the proposal and recommends
that you vote FOR the re-election of each of the director nominees.
HOW DO I VOTE IF I DO NOT PLAN TO ATTEND THE ANNUAL MEETING?
In addition to voting in person at the meeting, you may mark your selections on
the enclosed proxy card, date and sign the card, and return the card in the
envelope also enclosed. We encourage you to vote now even if you plan to attend
the meeting in person. If your shares are in a brokerage account, you may
receive different voting instructions from your broker.
With respect to the election of directors, votes may be cast in favor or
withheld. Votes that are withheld will be excluded in determining if nominee(s)
have received a plurality of votes, but will be counted in determining if a
quorum is present.
Please understand that voting by any means other than voting in person at the
meeting has the effect of appointing Robin L. Morgan, our Vice-President of
Administration, and William M. Warren, our Secretary, as your proxies. They
will be required to vote exactly as you have instructed on the election of
directors described in this proxy statement. However, if any other matter
requiring a stockholder vote is properly raised at the meeting, then Ms. Morgan
and Mr. Warren will be authorized to use their discretion to vote on this issue
on your behalf.
All shares of common stock represented at the annual meeting by properly
executed proxies received prior to or at the meeting and not revoked will be
voted at the meeting in accordance with the instructions indicated in such
proxies. If no instructions are indicated on a proxy, it will be voted FOR the
election of each of the nominees for director.
WHAT IS THE DIFFERENCE BETWEEN HOLDING SHARES AS A STOCKHOLDER OF RECORD AND AS
A BENEFICIAL OWNER?
Many Leather Factory ("TLF") stockholders hold their shares through a broker or
other nominee rather than directly in their own name. There are some
distinctions between shares held of record and those owned beneficially.
Stockholder of Record. If your shares are registered directly in your name with
TLF's transfer agent, Securities Transfer Corporation, you are considered, with
respect to those shares, the stockholder of record, and these proxy materials
are being sent directly to you by us. As the stockholder of record, you have
the right to grant your voting proxy directly to TLF or to vote in person at the
meeting. We have enclosed or sent a proxy card for you to use.
Beneficial Owner. If your shares are held in a brokerage account or by another
nominee, you are considered the beneficial owner of shares held in street name,
and these proxy materials are being forwarded to you together with a voting
instruction card. As the beneficial owner, you have the right to direct your
broker or nominee how to vote and are also invited to attend the annual meeting.
Since a beneficial owner is not the stockholder of record, you may not vote
these shares in person at the meeting unless you obtain a "legal proxy" from the
broker, trustee or nominee that holds your shares, giving you the right to vote
the shares at the meeting. Your broker, trustee or nominee has enclosed or
provided voting instructions for you to use in directing the broker, trustee or
nominee how to vote your shares.
WHAT IF I HOLD MY SHARES IN "STREET NAME," AND I DO NOT GIVE INSTRUCTIONS TO MY
BROKER OR NOMINEE?
In general, the broker or nominee would have the discretion to vote these
shares. Should there be any "broker non-votes," they will be counted as shares
that are present determining the presence of a quorum. At present, we are not
aware of anything that will come before the meeting involving matters where
American Stock Exchange rules bar brokers and nominees from voting if the
beneficial owner fails to execute and return a proxy.
HOW MANY VOTES ARE NECESSARY TO RE-ELECT THE NOMINEES FOR DIRECTOR?
Each nominee must receive the affirmative vote of a plurality of shares either
present at the meeting or represented by proxy to be elected. The affirmative
vote of holders of a majority of the shares either present at the meeting or
represented by proxy is required on any other action that may properly be
presented at the meeting. Cumulative voting is not allowed.
You should note that certain officers and directors of the Company own
approximately three-fifths of the outstanding shares of common stock that will
be entitled to vote at the meeting (see "Security Ownership of Certain
Beneficial Owners and Management"). We anticipate that these shares will be
voted in favor of the nominees for director. Thus, approval of the nominees for
director is likely.
WHAT IF A NOMINEE IS UNWILLING OR UNABLE TO STAND FOR ELECTION?
Each of the persons nominated for election has agreed to stand for election. We
are not aware of any intention of any nominee not to stand for election or any
circumstances that would cause any nominee not to stand for election. However,
if unexpected events arise which cause one or more of the nominees to be unable
to stand for election, then one of the following would occur:
- Our board of directors can vote at the meeting to reduce the size of the
board of directors;
- The nominating committee of our board of directors may, during the
meeting, nominate another person for director; or
- Pursuant to our bylaws, the board of directors could leave the vacancy
open until the board appoints a new director at a later time.
Your vote is completely confidential.
It is important for you to understand that if our board of directors nominates
someone at the meeting, the person to whom you have given your proxy will be
able to use his or her discretion to vote on your behalf for the candidate of
his or her choice.
WHO COUNTS THE VOTES AND HOW ARE THE VOTES TREATED?
We will appoint two persons as inspectors of election for the meeting who will
count the votes cast. They will treat shares represented by proxies that
withhold authority as shares that are present and entitled to vote when
determining if a quorum exists for any matter voted upon by the stockholders.
WHAT IF I WANT TO CHANGE MY VOTE?
You can change your vote on a proposal at any time before the meeting for any
reason by revoking your proxy. Proxies may be revoked by:
- Filing a written notice of revocation, which includes a later date than
the proxy date, with our secretary at or before the meeting;
- Properly executing a later proxy relating to the same shares; or
- Attending the meeting and voting in person; however, attendance at the
meeting will not in and of itself constitute a revocation of a proxy.
Any written notice revoking a proxy should be sent to: Secretary, The Leather
Factory, Inc., 3847 East Loop 820 South, Fort Worth, Texas 76119.
WHO PAYS FOR THIS SOLICITATION?
We, the company, will pay for the cost of soliciting proxies. Our directors,
officers and employees may solicit proxies. They will not be paid for
soliciting the proxies but may be reimbursed for out-of-pocket expenses related
to the proxy solicitation. Proxies may be solicited in person, by mail, by
telephone, by telegram or other means of communication. We will make
arrangements with custodians, nominees and fiduciaries in order to forward proxy
solicitation materials to beneficial owners of common stock.
WHO IS OUR INDEPENDENT PUBLIC ACCOUNTANT?
Our Audit Committee selected Weaver & Tidwell, LLP ("Weaver & Tidwell") to serve
as our independent public accountant for the year ended December 31, 2003. A
representative of Weaver & Tidwell is expected to attend the meeting. The
representative will have the opportunity to make a statement at the meeting and
respond to appropriate questions from you, our stockholders. Our Audit
Committee has not named the independent public accounting firm that will serve
as outside auditor for 2004.
WHAT FEES DID WE PAY TO OUR INDEPENDENT PUBLIC ACCOUNTANT DURING THE PRECEDING
TWO FISCAL YEARS?
Audit Fees. Hein + Associates LLP ("Hein") performed the audit of our 2002
financial statements and the reviews of our Forms 10-Q for 2002 and the first
two quarters of 2003. Weaver & Tidwell performed the audit of our 2003
financial statements and the review of our third quarter 2003 Form 10-Q. The
amounts shown below are the aggregate amounts paid to these firms during 2002
and 2003 for services in the categories indicated.
TYPES OF FEES HEIN WEAVER & TIDWELL
--------------- ------- ------------------
Audit fees $73,388 $43,250
Audit-related fees - -
Tax fees - -
All other fees - -
-------- -------
TOTAL FOR 2002 and 2003 $73,388 $43,250
======== =======
Pursuant to the charter of our Audit Committee as in effect at the relevant
times and the rules of the SEC, the Audit Committee approved all of the fees
indicated above before the services were provided.
WHEN DID THE COMPANY CHANGE ITS INDEPENDENT PUBLIC ACCOUNTANT?
Effective August 18, 2003, the Audit Committee unanimously recommended and
directed (a) the dismissal of Hein as the Company's independent accountants and
(b) the engagement of Weaver & Tidwell as the Company's independent accountants
to audit the Company's consolidated financial statements for the fiscal year
ending December 31, 2003.
The reports of Hein on the Company's consolidated financial statements for
either of the past two fiscal years did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope, or accounting principles. In connection with the audits of the Company's
financial statements for each of the two fiscal years ended December 31, 2002,
and in the subsequent interim period, there were no disagreements between the
Company and Hein on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures that, if not resolved to
the satisfaction of Hein, would have caused Hein to make reference to the
subject matter of the disagreement(s) in its reports. During the two fiscal
years ended December 31, 2002 and through August 18, 2003, there have been no
reportable events (as defined in Securities and Exchange Commission Regulation
S-K Item 304(a)(1)(iv)).
No consultations occurred between the Company and Weaver & Tidwell during the
two fiscal years and any interim period preceding the appointment of Weaver &
Tidwell regarding the application of accounting principles to a specific
transaction (either completed or proposed), the type of audit opinion that might
be rendered on the Company's consolidated financial statements or any other
accounting, auditing or financial reporting matter required to be disclosed here
pursuant to Regulation S-K Item 304(a)(2).
HOW DO I RAISE AN ISSUE FOR DISCUSSION OR VOTE AT THE ANNUAL MEETING?
If you wish to present a proposal for consideration at an annual meeting, you
must send written notice of the proposal to our corporate secretary. We have
not received notice of any stockholder proposals to be presented at this year's
meeting.
If you would like your proposal to be included in next year's proxy statement,
you must submit it to our corporate secretary by no later than December 24,
2004. We will include your proposal in our next annual proxy statement if it is
a proposal that we would be required to include pursuant to the rules of the
Securities and Exchange Commission.
You may write to our corporate secretary at 3847 East Loop 820 South, Fort
Worth, Texas 76119 to present a proposal for consideration.
If a stockholder raises a matter at the meeting that requires a stockholder
vote, the person to whom you have given your proxy will use his or her
discretion to vote on the matter on your behalf.
According to our by-laws, any proposal properly raised at the meeting by a
stockholder will require the affirmative vote of a majority of the shares deemed
present at the meeting, whether in person or by proxy.
HOW CAN I RECEIVE A COPY OF THE ANNUAL REPORT?
We provide a free copy of our Annual Report on Form 10-K that includes the
financial statements and schedules, but does not include the exhibits. If you
would also like the report's exhibits, we will provide copies of the exhibits.
We may charge a reasonable fee for providing these exhibits.
In order to receive this report, you must request a report in writing and mail
the request to The Leather Factory, Inc., PO Box 50429, Fort Worth, Texas
76105-0429, Attention: Shannon L. Greene, Chief Financial Officer.
In addition, information concerning obtaining our complete Form 10-K with
exhibits and other securities filings from the Securities and Exchange
Commission and our website is contained in Item 1 of the enclosed Form 10-K.
WHAT IS OUR POLICY REGARDING DIRECTOR ATTENDANCE AT THE ANNUAL MEETING?
While we do not have a formal policy regarding attendance at our Annual Meeting,
all directors are strongly urged to attend. Last year, all directors nominated
for election to the Board of Directors attended the Annual Meeting.
HOW DO I COMMUNICATE WITH THE DIRECTORS OF THE LEATHER FACTORY, INC.?
Stockholders who wish to communicate with the Chairman or with the independent
directors as a group may do so by writing to the Corporate Secretary at The
Leather Factory, Inc., PO Box 50429, Fort Worth, Texas 76105-0429. The
Secretary will forward your communication to the independent directors or
Chairman as requested by the stockholder. All appropriate communications
addressed to directors will be reviewed by the Corporate Secretary. Because
other appropriate avenues of communication exist for matters that are not of
stockholder interest, such as general business complaints or employee
grievances, communications that do not relate to matters of stockholder interest
will not be forwarded to the Board. The Corporate Secretary has the option, but
not the obligation, to forward these other communications to appropriate
channels within the Company.
BOARD STRUCTURE AND COMPOSITION
As of the date of this proxy statement, our Board has eight directors and the
following five committees: (1) Audit, (2) Compensation, (3) Nominating, (4)
1995 Director Non-Qualified Stock Option Plan committee, and (5) 1995 Stock
Option Plan Committee. The membership during the last fiscal year and the
function of each committee are described below. During fiscal 2003, the Board
held five meetings. H.W. Markwardt attended less than 75% of all board and
committee meetings on which he served during 2003.
Director Non- Stock
Qualified Stock Option
Name of Director Audit Compensation Nominating Option Plan Plan
--------------------------------- --------------- ------------ ---------- ----------- ----
Non-Employee Directors:
---------------------------------
T. Field Lange X X X
Joseph R. Mannes X* X X X
H.W. Markwardt X X X X
Michael A. Markwardt X X* X
Michael A. Nery X X X
Employee Directors:
---------------------------------
Wray Thompson X* X
Shannon L. Greene X
Ronald C. Morgan X X*
Number of Meetings in Fiscal 2003 4 0 0 1 1
___________________
X = Committee member; * = Committee Chairman
AUDIT COMMITTEE
Among other duties, the Audit Committee is to be the Board's principal agent in
assuring the independence of the Company's outside auditor, the integrity of
management, and the adequacy of disclosures to stockholders. The Company's
Board has determined that all members of the Audit Committee are "independent"
under the applicable rules of the American Stock Exchange and that Joseph R.
Mannes, chairman of the Audit Committee in 2003 and 2004, and T. Field Lange,
committee member, both qualify as an "audit committee financial expert" as
defined by the SEC. In addition, the Company's Board of Directors has adopted a
written charter for the Audit Committee, which is attached as Exhibit A and will
also be available on the Company's website at www.leatherfactory.com. The Audit
Committee's basic role is to assist the Board in fulfilling its fiduciary
responsibility pertaining to accounting policies and reporting practices of the
Company. The committee met four times during 2003.
The Audit Committee has not made a recommendation to the Board regarding the
retention or non-retention of Weaver & Tidwell, LLP as independent outside
auditor for 2004. The committee historically meets in the fall to discuss the
selection of auditors for the current year.
The Report of the Audit Committee for the fiscal year ended December 31, 2003
appears below.
COMPENSATION COMMITTEE
The Compensation Committee is responsible for recommending to the board of
directors the compensation program of the executive officers. The basic
philosophy of the executive compensation program is to link the compensation of
its executive officers to their contribution toward increases in the size of the
operations and income of the company and accordingly, increases in stockholder
value. Consistent with that philosophy, the executive compensation program is
designed to meet the following policy objectives:
1. Attracting and retaining qualified executives critical to the long-term
success of the company;
2. Tying executive compensation to the company's general performance and
specific attainment of long-term strategic goals;
3. Rewarding executives for contributions to strategic management designed
to enhance long-term stockholder value; and
4. Providing incentives that align the executive's interest with those of
the company's stockholders.
None of the members were a party to any material transaction with us during the
past year. In addition, none of our executive officers served as a member of
the compensation or similar committee or board of directors of any other entity
of which an executive officer served on our Compensation Committee or our board
of directors. The committee did not meet during 2003.
A charter for the Compensation Committee was recently adopted effective for
2004, and a copy is available from the Company's website
(www.leatherfactory.com). The Report of the Compensation Committee for 2003
appears below.
NOMINATING COMMITTEE
The Company has a nominating committee consisting of five directors, all of whom
are "independent" under the American Stock Exchange rules. The committee did
not meet during 2003.
A written charter for the Nominating Committee was recently adopted to be
effective for 2004. This charter provides that the Nominating Committee is
responsible for identifying individuals qualified to become directors consistent
with criteria established by the Board of Directors. Although the Board of
Directors has not yet established these criteria, the charter also provides that
the Nominating Committee shall take into account such additional factors as it
deems appropriate in evaluating candidates. These factors may include strength
of character, mature judgment, career specialization, relevant technical skills,
diversity and the extent to which a candidate would fill a present need on the
committee. In addition, the charter states that the committee will consider
stockholder recommendations of director nominees, as well as nominations by
senior officers of the Company. The committee plans to evaluate all director
nominees in a like manner without regard as to who recommended the nomination.
Traditionally, the Company has not engaged third parties to identify or evaluate
potential directors or to assist in that process. A copy of the new Nominating
Committee charter is available at the Company's website
(www.leatherfactory.com).
In addition, the Nominating Committee makes a review and evaluation at least
annually of the Board of Directors and the committee's own performance.
Further, the committee recommends persons to serve on the committee as members,
as well as the possible removal of any incumbent committee members.
1995 STOCK OPTION PLAN COMMITTEE
This committee has the general duty to review and approve the granting of
incentive stock options to key personnel pursuant to the 1995 Stock Option Plan.
The committee met one time during 2003 to approve stock options grants totaling
60,000 shares.
1995 DIRECTOR STOCK OPTION PLAN COMMITTEE
This committee reviews and approves granting of stock options to the
non-employee directors pursuant to the 1995 Director Non-Qualified Stock Option
Plan. The committee met one time during 2003.
PROPOSAL ONE: ELECTION OF DIRECTORS
There are eight nominees for election to our Board this year. Seven of the
nominees have served as directors since the last annual meeting, while Mr. Nery
was appointed to the Board of Directors in December 2003. Information regarding
the business experience of each nominee is provided below. Each directly is
elected annually to serve until the next annual meeting or until their
successors are elected and qualified.
WRAY THOMPSON, 72, has served as our Chairman of the Board and Chief Executive
Officer since June 1993. He also served as President from June 1993 to January
2001. Mr. Thompson was a co-founder of the company.
SHANNON L. GREENE, 38, has served as our Chief Financial Officer and Treasurer
since May 2000. She was appointed to serve on the Board of Directors in January
2001. From September 1997 to May 2000, Ms. Greene served as our controller and
assistant controller. Ms. Greene also is a member of the company's Employees'
Stock Ownership Plan (ESOP) Committee and is a certified public accountant. Her
professional affiliations include the American Institute of Certified Public
Accountants, the Texas Society of Certified Public Accountants and its Fort
Worth chapter, the Fort Worth Association of Financial Professionals, and the
National Investor Relations Institute.
T. FIELD LANGE, 36, has served as a director of the company since May 2003. Mr.
Lange, a certified public accountant, is the president of Lange & Associates,
P.C., a public accounting firm in Fort Worth, Texas. Prior to opening his firm
in 1996, Mr. Lange was an audit and tax associate for Deloitte and Touche LLP.
His professional affiliations include the American Institute of Certified Public
Accountants, the Texas Society of Certified Public Accountants and its Fort
Worth chapter. Mr. Lange holds a Bachelor of Science degree with a major in
accounting from Texas Christian University.
JOSEPH R. MANNES, 45, has served as a director of the company since May 1998.
Currently, Mr. Mannes serves as the managing director in the corporate finance
department of SAMCO Capital Markets, a Dallas, Texas broker-dealer. From
October 1998 until October 2001, he was chief financial officer and secretary of
Clearwire Technologies, Inc. of Arlington, Texas, a manufacturer and service
provider of wireless Internet networks, as well as a provider of Internet
connectivity. Mr. Mannes is a chartered financial analyst. He also serves on
the advisory board of Conchemco, Inc. and is chairman of HiTech Creations, Inc.
Mr. Mannes has an MBA in Accounting and Finance from the Wharton School,
Graduate Division, of the University of Pennsylvania and also holds a Chartered
Financial Analyst designation. He has over ten years of experience in various
chief financial officer positions.
H.W. MARKWARDT, 68, has served as a director of the company since May 1996.
Retired since 1995, he currently manages his personal investments. He is the
father of Michael A. Markwardt, another of the company's directors.
MICHAEL A. MARKWARDT, 45, has served as a director of the company since January
2001. He currently serves as majority owner and managing partner of Legare,
L.P., an importer of furniture in the U.S. and Europe. Mr. Markwardt also
services and vice president of Markwardt Investments, Inc. and SBM Properties,
Inc., family corporations dealing in securities, fixed income and real estate
investments. He is the son of H.W. Markwardt, another of the company's
directors.
RONALD C. MORGAN, 56, has served as our President since January 2001 and has
served as Chief Operating Officer and director since June 1993. Mr. Morgan was
also a co-founder of the company.
MICHAEL A. NERY, 31, has served as a director of the company since December
2003. Since September 1999, his investment advisory firm has directed the
investments of Nery Capital Partners, L.P., an investment fund based in
Ashville, NC. From January 1997 to May 1999, he served as Vice President and
Senior Analyst with Denver Energy Partners, LP.
The information relating to the occupations and security holdings of our
directors is based upon information received from them.
HOW DO WE COMPENSATE OUR DIRECTORS?
Meeting fees. Non-employee directors receive $1,000 for each board meeting
attended and $500 for each committee meeting attended, with the exception of the
committee chairman who receives $750 for each committee meeting attended. We
also reimburse our directors for travel, lodging and related expenses they incur
in attending board and committee meetings.
Stock Options. We are currently authorized to grant nonqualified stock options
to purchase 2,000 shares of our common stock per year to each of our
non-employee directors under our 1995 Director Non-Qualified Stock Option Plan.
The goal of this stock option plan is to provide a means of attracting and
retaining competent non-employee personnel to serve on our board of directors by
offering individuals long-term equity incentives tied to our performance. Each
of our non-employee directors is eligible to participate in this option plan.
Our directors who are also employees receive no additional compensation for
serving as directors.
ARE ALL OF OUR NON-EMPLOYEE DIRECTORS CONSIDERED INDEPENDENT?
Our common stock is listed on the American Stock Exchange. The Board of
Directors has considered the AMEX listing requirements for "Independence" of
Directors, and it has determined that all of its non-employee directors are
"independent. Our independent directors will hold executive sessions at least
once a year.
COMMON STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
WHO OWNS MORE THAN 5% OF OUR STOCK AND HOW MUCH STOCK DO OUR EXECUTIVE OFFICERS
AND DIRECTORS OWN?
The following table sets forth information, as of March 31, 2004, concerning:
- The Leather Factory, Inc. Employees' Stock Ownership Plan & Trust, a
beneficial owner of more than 5% of TLF common stock;
- Beneficial ownership by current TLF directors and the named executive
officers set forth in the Summary Compensation table below; and
- Beneficial ownership by all current TLF directors and TLF executive
officers as a group.
The information provided in the table is based on TLF's records, information
filed with the Securities and Exchange Commission and information provided to
TLF, except where otherwise noted.
The number of shares beneficially owned by each entity, person, director or
executive officer is determined under the rules of the Securities and Exchange
Commission, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under these rules, beneficial ownership
includes any shares as to which the individual has the sole or shared voting
power or investment power and also any shares that the individual has the right
to acquire now or within 60 days after the record date of April 20, 2004 through
the exercise of any stock option or other right. Unless otherwise indicated,
each person has sole voting and investment power (or shares such powers with his
or her spouse) with respect to the shares set forth in the following table.
BENEFICIAL OWNERSHIP TABLE
BENEFICIAL OWNERSHIP (1)
------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT NATURE TOTAL PERCENT OF CLASS
--------------------------------------------- ------------------------ --------------- ---------- -----------------
THE LEATHER FACTORY, INC.
EMPLOYEES' STOCK OWNERSHIP PLAN & TRUST
PO Box 50429
Fort Worth, Texas 76105-0429 981,540(2) 981,540 9.33%
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
2,134,087 Direct
WRAY THOMPSON 84,083 ESOP 2,218,170 27.03%
3,141,308 Direct
RONALD C. AND ROBIN L. MORGAN (3) 176,454 ESOP 3,317,762 32.45%
15,758 Direct
10,089 ESOP
SHANNON L. GREENE 76,000 Vested Options 101,847 *
5,000 Direct
JOSEPH R. MANNES 12,000 Vested Options 17,000 *
57,000 Direct
H.W. MARKWARDT 2,000 Vested Options 59,000 *
22,000 Direct
MICHAEL A. MARKWARDT 2,000 Vested Options 24,000 *
1,000 Direct
T. FIELD LANGE 2,000 Vested Options 3,000 *
MICHAEL A. NERY (4) 500,000 Indirect 500,000 4.71%
ALL CURRENT DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (9 PERSONS) 6,240,779 58.77%
___________
* Represents holdings of less than one percent.
(1) Pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of 1934, as
amended, "Vested Options" are options that may be exercised now or within 60
days after the record date.
(2) The Trustee of the Employees' Stock Ownership Plan & Trust ("ESOP")
votes the shares held by the ESOP that are allocated to participant accounts as
directed by the participants or beneficiaries of the ESOP. Except in certain
limited circumstances, the Trustee may acquire and dispose of the assets of the
ESOP only as the ESOP Committee directs. The ESOP Committee is made up of
officers and other employee participants of the Company and presently consists
of Robin L. Morgan, Shannon L. Greene, and three other employees. As members of
this Committee, these persons may be deemed to share investment power with
respect to the allocated shares held by the ESOP. Each member of the ESOP
Committee disclaims beneficial ownership of the securities held by the ESOP
except for those that have been allocated to the member as a participant in the
ESOP. The total number of shares held by the ESOP includes 270,626 shares that
are beneficially owned by the Executive Officers and are also included in the
table below as being owned by those persons.
(3) Ronald C. Morgan, a director and the Company's President, and Robin L.
Morgan, the company's Vice President of Administration and Assistant Secretary,
are married. Shares beneficially owned by Mr. and Mrs. Morgan are held as
community property.
(4) Mr. Nery is the owner of an investment advisory firm that directs the
investments of Nery Capital Partners, L.P., which is the record holder of the
shares indicated.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Sections 16(a) of the Securities Exchange Act of 1934, as amended, requires our
directors, executive officers and holders of more than 10% of TLF common stock
to file reports regarding their ownerships and changes in ownership of our
securities with the Securities and Exchange Commission. TLF believes that,
during fiscal 2003, its directors, executive officers and 10% stockholders
complied with all Section 16(a) filing requirements, with the following
exceptions: Mr. Lange's initial Form 3 was not filed timely upon election to
the board of directors in May 2003. In addition, Form 4's were not filed timely
on two trades during the year - one occurring on August 25, 2003 (Director, T.
Field Lange) and one on December 30, 2003 (Director, H.W. Markwardt). We
believe that the lack of timely filing was a result of an oversight by the
parties involved. Late filings on these transactions were made on August 28,
2003 and January 5, 2004, respectively. Our disclosure on this topic is based
solely on review of the information provided to us by persons subject to these
requirements.
OTHER INFORMATION YOU NEED TO MAKE A DECISION
WHO ARE OUR EXECUTIVE OFFICERS?
Information concerning our executive officers can be found in Item 1 of the
enclosed Annual Report on Form 10-K, under the caption "Executive Officers of
the Registrant."
All officers are elected annually by the Board of Directors to serve for the
ensuing year.
HOW DO WE COMPENSATE OUR EXECUTIVE OFFICERS?
The Compensation Committee of our board of directors is responsible for
oversight of our executive compensation program. The committee submits all
issues concerning executive compensation to the full board of directors for
approval. This committee does not review or approve stock option grants.
Annual and Other Compensation. The following table includes certain information
concerning annual and other compensation for all executive services for the
years ended December 31, 2003, 2002 and 2001 paid to our executive officers.
SUMMARY COMPENSATION TABLE
--------------------------
LONG-TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS
------------------- ------
SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) UNDERLYING OPTIONS (#) COMPENSATION(1)
----------------------------------- ---- ----------- ---------- ---------------------- ---------------
WRAY THOMPSON 2003 $ 168,000 - - $6,395
Chairman and Chief 2002 160,000 $ 50,000 - 11,331
Executive Officer 2001 157,500 35,000 - 8,937
RONALD C. MORGAN 2003 $ 155,000 - - $6,395
President and Chief 2002 145,000 $ 50,000 - 10,459
Operating Officer 2001 141,600 35,000 - 8,758
SHANNON L. GREENE 2003 $ 95,000 - 25,000 $3,991
Treasurer and Chief 2002 85,000 $ 30,000 - 6,094
Financial Officer 2001 78,500 20,000 60,000 4,689
ROBIN L. MORGAN 2003 $ 80,000 - - $2,878
Vice President of Administration 2002 76,000 $ 10,000 - 4,852
and Assistant Secretary 2001 73,000 7,500 - 3,995
(1) The amounts in this column represent the amounts accrued on behalf of the
named individuals for the annual contribution to the Company's ESOP.
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table provides information on option exercises with respect to TLF
common stock in fiscal 2003 by the named executive officer and the values of the
officer's unexercised options at December 31, 2003. There were no stock
appreciation rights exercised or outstanding.
Number of Number of Securities Value of Unexercised In-
Shares Acquired Value Underlying Unexercised the-Money Options at
Name On Exercise Realized Options at Fiscal Year-End Fiscal Year-End (1)
----------------- --------------- -------- -------------------------- --------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- -------------- ----------- -------------
Shannon L. Greene - $ - 42,000 72,000 $100,135 $170,715
(1) The value of unexercised options is based upon the difference between the exercise price
and the closing market price on December 31, 2002, which was $3.38.
(1) The value of unexercised options is based upon the difference between the
exercise price and the closing market price on December 31, 2003, which was
$4.84.
DID WE HAVE TRANSACTIONS WITH OUR OFFICERS, DIRECTORS OR 5% STOCKHOLDERS?
During 2003, the public accounting firm of Cole, Greene & Ruggeburg, P.C., of
which the spouse of Ms. Shannon L. Greene, Treasurer, Chief Financial Officer,
and director of the company, is a minority stockholder, was engaged to provide
tax preparation services to the Company. Fees paid to the accounting firm in
2003 totaled $29,070 (less than 5% of the firm's annual revenues). Our Audit
Committee considered and approved the engagement of Cole, Greene & Ruggeburg,
P.C.
HOW DID OUR COMMON STOCK PERFORM COMPARED TO CERTAIN INDEXES?
The line graph below compares the yearly percentage change in our cumulative
five-year total stockholder return on our common stock with the Standard &
Poor's SmallCap 600 Index, and the common stock of a peer group of companies
(the "Peer Group") whose returns are weighted according to their respective
market capitalization. The graph assumes that $100 was invested on December 31,
1998 in the Company's common stock, the Standard & Poor's SmallCap 600 Index,
and the Peer Group, and that all dividends were reinvested. The Peer Group
consists of companies with publicly traded stock included in SIC 5190 -
Miscellaneous Non-Durable Goods Wholesale. The returns shown on the graph are
not necessarily indicative of future performance.
COMPARISON OF FIVE-YEAR TOTAL RETURN
FOR THE LEATHER FACTORY, INC., THE PEER GROUP INDEX (1) ,
AND THE S&P SMALLCAP 600 INDEX
[GRAPHIC OMITED]
COMPANY NAME / INDEX DEC 98 DEC 99 DEC 00 DEC 01 DEC 02 DEC 03
---------------------- ------ ------ ------ ------ ------ ------
LEATHER FACTORY INC 100 325.00 400.00 832.00 1352.00 1936.00
S&P SMALLCAP 600 INDEX 100 112.40 125.67 133.88 114.30 158.63
PEER GROUP 100 80.34 58.49 83.82 88.08 110.58
Data Source: S&P Compustat Services
(1) The following 10 companies comprise the Peer Group Index: Advanced
Marketing Services, Amcon Distributing Co., Central Garden & Pet Co., Core-Mark
International Inc., Dimon Inc., Educational Development Corp, Enesco Group Inc.,
Finishmaster Inc., Royster-Clark Inc., Source Interlink COS Inc.
REPORT OF THE AUDIT COMMITTEE
As members of the Audit Committee, we oversee the Company's financial reporting
process on behalf of our Board of Directors. Management is responsible for the
preparation, presentation, and integrity of our financial statements, accounting
and financial reporting principles, internal controls, and procedures designed
to ensure compliance with accounting standards, applicable laws, and
regulations.
During 2003, we analyzed the service provided by and associated costs of our
external auditing firm. After reviewing proposals from a number of independent
accounting firms, we recommended and the Board approved the appointment of
Weaver & Tidwell, LLP as independent auditors for the year ended December 31,
2003. Our auditors are responsible for performing an independent audit of the
consolidated financial statements and expressing an opinion on the conformity of
those audited financial statements with accounting principles generally accepted
in the United States.
The Company's previous auditor, Hein + Associates LLP ("Hein"), was engaged for
the review of the first two quarters Form 10-Q filings during 2003. Hein
performed audits of the consolidated financial statements for the two years
ended December 31, 2002 and 2001. Their reports on the financial statements did
not contain an adverse opinion or a disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope, or accounting principles. During
the two years ended December 31, 2002 and from December 31, 2002 through the
effective date of the Hein termination, there have been no disagreements between
the Company and Hein on any matter of accounting principles or practice,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Hein, would have caused
Hein to make reference to the subject matter of such disagreements in connection
with their reports on the financial statements for such years.
The Audit Committee has reviewed and discussed our audited financial statements
for the year ended December 31, 2003 with our management and has discussed with
Weaver & Tidwell, LLP the matters required to be discussed by Statement on
Auditing Standards Board Standard No. 61, as amended, "Communication with Audit
Committees". In addition, Weaver & Tidwell, LLP has provided the audit
committee with the written disclosures and the letter required by Independence
Standards Board Standards No. 1, "Independence Discussions with Audit
Committees", and the audit committee has discussed with Weaver & Tidwell, LLP
their independence from The Leather Factory, Inc. and its management.
Based on these reviews and discussions, the audit committee recommended to the
Board of Directors that the audited financial statements be included in our
Annual Report on Form 10-K for the year ended December 31, 2003, for filing with
the Securities and Exchange Commission.
AUDIT COMMITTEE
THE LEATHER FACTORY, INC.
JOSEPH R. MANNES, Chairman
T. FIELD LANGE
H.W. MARKWARDT
MICHAEL A. MARKWARDT
MICHAEL A. NERY
***************************
REPORT OF THE COMPENSATION COMMITTEE
In 2003, our Compensation Committee consisted of non-employee directors. None
of these directors participate in the compensation programs described in this
report. The Compensation Committee is responsible for reviewing and making
recommendations to our board of directors regarding the compensation of our
executive officers. Our board of directors has final approval of executive
officer compensation. We review the performance of each executive officer on at
least an annual basis.
Compensation for our executive officers consists of the following components:
- Annual base salary;
- Annual incentive bonus;
- Long-term compensation in the form of stock option grants;
- Company contributions under our ESOP.
As shown below, annual corporate performance is a key factor in determining the
amount of annual discretionary bonuses awarded. Other forms of compensation are
not directly tied to our annual performance.
Base salary. During 2003, we sought to establish base salaries of our executive
officers at levels that, in the judgment of the committee members and the board
of directors, were sufficiently competitive to retain qualified executive
officers. These salary levels were determined based on prior experience and
compared to salaries for comparable positions in other companies. Base salaries
are generally increased annually assuming the company's financial performance is
satisfactory.
Bonuses. Historically, the company awards discretionary bonuses to its
executive officers as well as certain other employees. These bonuses are
determined on a subjective basis, considering prior bonus amounts awarded, the
availability of cash, the business prospects for the upcoming year, and the
increase in net income for the year in question as general guidelines. The
Compensation Committee determines the bonuses awarded to the executive officers,
while the executive officers determine bonuses awarded to non-officer employees.
For the fiscal year ended December 31, 2003, no bonuses were awarded to the
executive officers due to the minimal improvement in the operating results in
fiscal 2003 results compared to fiscal 2002.
Stock options. Ms. Greene is the only executive officer who is eligible for
stock option grants as our stock option plan specifically prohibits grants of
stock options to Mr. Thompson, Mr. Morgan and Ms. Morgan. Options for 25,000
shares were granted to Ms. Greene during 2003.
Employees' Stock Ownership Plan. Our ESOP was established to provide long-term
incentive compensation for our employees. The executive officers participate in
the ESOP in the same manner as all other plan participants. The company makes
annual cash or stock contributions to a trust for the benefit of eligible
employees and the trust in turn invests in shares of the Company's Common Stock.
An unaffiliated bank is trustee of the trust.
During 2003, our chief executive officer's base salary rate was $168,000, a 5%
increase from 2002. This base salary was, in the opinion of the committee and
the board of directors, consistent with salaries for comparable positions within
our industry. Based on the reasons explained above, the Compensation Committee
did not award an incentive bonus to our chief executive officer for 2003.
COMPENSATION COMMITTEE
THE LEATHER FACTORY, INC.
MICHAEL A. MARKWARDT, Chairman
T. FIELD LANGE
H.W. MARKWARDT
JOSEPH R. MANNES
MICHAEL A. NERY
EXHIBIT A
----------
THE LEATHER FACTORY, INC.
AUDIT COMMITTEE CHARTER
(REVISED FEBRUARY 26, 2004)
The Board of Directors of The Leather Factory, Inc. (hereinafter referred to as
"TLF" or the "Company") hereby reaffirms the establishment of the Audit
Committee (hereinafter referred to as the "Committee") of the Board of
Directors, and amends and restates this Audit Committee Charter effective this
26th day of February 2004.
As more fully described below, the Committee shall have the authority,
responsibility, and specific duties required to be vested pursuant to Section
10A of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the
rules of the Securities and Exchange Commission ("SEC"), and the American Stock
Exchange, LLC ("Amex") Company Guide.
COMPOSITION
-----------
All Audit Committee Members. The Committee shall consist of at least three
Directors, all of whom shall be independent (as more fully provided below) and
able to read and understand fundamental financial statements, including the
Company's balance sheet, income statement and cash flow statement. The Board of
Directors shall appoint members of the Committee annually, and the Board shall
designate one of the members of the Committee to be its Chairman.
In order to be an independent Director, the Board must determine that he or she
satisfies the independence requirements contained in Section 121A of the Amex
Company Guide and SEC Rule 10A-3.
[*Copies of all statutes and rules cited in this Audit Committee Charter shall
be available from the Company's legal counsel and from the Chief Financial
Officer.]
Audit Committee Financial Expert. In addition, the Committee shall include at
least one member whom the Board of Directors determines qualifies as an "audit
committee financial expert" as that term is used in SEC Regulation S-K Item
401(h). An audit committee financial expert shall be independent (as described
above) and have the following attributes:
(a) an understanding of generally accepted accounting principles and
financial statements;
(b) the ability to assess the general application of these principles in
connection with the accounting for estimates, accruals and reserves;
(c) experience preparing, auditing, analyzing or evaluating financial
statements that present a breadth and level of complexity of accounting issues
that are generally comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by the Company's financial statements, or
experience actively supervising one or more persons engaged in such activities;
(d) an understanding of internal controls and procedures for financial
reporting; and
(e) an understanding of audit committee functions.
The audit committee financial expert shall have acquired these attributes by
1. education and experience as chief financial officer, chief accounting
officer, controller, public accountant or auditor, or experience in one or more
positions that involve the performance of similar functions;
2. experience actively supervising a chief financial officer, chief
accounting officer, controller, public accountant, auditor or person performing
similar functions;
3. experience overseeing or assessing the performance of companies or public
accountants with respect to the preparation, auditing or evaluation of financial
statements; or
4. other relevant experience.
RESPONSIBILITIES AND AUTHORITY
--------------------------------
The Committee is to serve as a focal point for communication between Directors
not on the Committee, the outside auditor, and the Company's management, as
their duties relate to financial accounting, reporting, and controls. The
Committee is to assist the Board of Directors in fulfilling its fiduciary
responsibilities as to accounting policies and reporting practices of TLF and
the sufficiency of auditing relative thereto. The Committee is to be the
Board's principal agent in assuring the independence of the Company's outside
auditor, the integrity of management, and the adequacy of disclosures to
stockholders.
To the full extent permitted by the Delaware General Corporation Law and the
Company's Certificate of Incorporation and Bylaws, the Board of Directors has
granted to the Committee all powers normally granted to an audit committee of a
company with securities listed for trading on a national securities exchange.
In addition, the Committee shall have all authority required to be granted to it
pursuant to Section 10A of Securities Exchange Act of 1934, the Sarbanes-Oxley
Act of 2002, SEC rules (including Rule 10A-3), and the Amex Company Guide,
including:
(i) The Committee shall oversee the accounting and financial processes of
the Company;
(ii) The Committee shall oversee the audits of the Company's financial
statements. In that regard, the Committee shall be directly and solely
responsible for the appointment, compensation, retention, evaluation,
termination and oversight of the work of the outside auditor engaged (including
resolution of disagreements between management and the outside auditor regarding
financial reporting) for the purpose of preparing or issuing an audit report or
related work (such as performing other audit, review or attest services for the
Company); and the outside auditor shall report directly to the Committee;
(iii) The Committee shall have the sole authority to approve all auditing
services and non-audit services to be provided by the outside auditor before
those services are rendered;
(iv) The Committee shall establish procedures for (a) the receipt, retention
and treatment of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters, and (b) the confidential,
anonymous submission by employees of the Company or its subsidiaries regarding
questionable accounting or auditing matters;
(v) The Committee shall have the authority to engage independent counsel and
other advisers it determines necessary to carry out its business;
(vi) The Committee, as a committee of the Board of Directors, shall
determine the appropriate funding for payment of (a) compensation to the outside
auditor and any other registered public accounting firm engaged for the purpose
of preparing or issuing an audit report or performing other audit, review or
attest services for the Company, (b) compensation to independent counsel and
other advisers retained or engaged by the Committee, and (c) ordinary
administrative expenses of the Committee that are necessary or appropriate in
the Committee's carrying out of its duties; and
(vii) The Committee shall review and oversee all related party transactions.
SPECIFIC DUTIES
----------------
In addition to fulfilling the responsibilities described in "Responsibilities
and Authority," the Committee shall do the following:
RELATIONSHIP WITH OUTSIDE AUDITOR
(1) The Committee shall have the exclusive power and duty to appoint and
engage the outside auditors. In addition, the Committee shall review, no less
than annually, the performance of the outside auditors and determine if the
outside auditor is to continue or to be replaced. In the event of the
termination and replacement of the outside auditor, the Committee alone shall
make these determinations.
(2) In connection with the annual engagement of the outside auditor, the
Committee shall receive formal written disclosure and a letter from the outside
auditor delineating all relationships between the auditor and the Company.
These shall be consistent with Independence Standards Board Standard No. 1
Independence Discussions with Audit Committees and any other appropriate
certification from the outside auditor that it satisfies all applicable
independence standards with respect to auditing the Company's financial
statements, including the standards of the SEC Regulation S-X Sec. 2-01. The
outside auditor shall be solely responsible for the accuracy of this
certification; however, the Committee shall also consider and evaluate any other
information that may come to its attention that suggests that the outside
auditor does not meet these independence standards. The Committee shall
actively discuss any disclosed relationships or services with the auditor and
how these may affect the objectivity and independence of the auditor.
(3) The Committee shall pre-approve all auditing services and non-audit
services before they are performed. Prior to authorizing any non-audit
services, the Committee shall determine that the services to be provided to the
Company are not among the services that the Company's outside auditor is
prohibited to provide under Section 10A(g) of the Securities Exchange Act of
1934 and SEC Regulation S-X Rule 2-01. All services other than audit, review or
attest services shall be pre-approved by the Committee and disclosed by the
Company in the manner required by Section 10A(h) of the Securities Act of 1934
and SEC Regulation S-X Rule 2-01, unless the services fall within the de minimis
exception and procedures found in Rule 2-01.
(4) The Committee shall determine that all of the outside auditor's audit
partners, (including the lead partner and concurring partner) on the Company's
audit have satisfied the applicable partner rotation requirements contained in
Rule 2-01(6) of SEC Regulation S-X.
CONDUCT OF THE AUDIT; ANNUAL REPORT
(1) In conducting the audit of the Company's financial statements, the
outside auditor shall work with the Company's officers and employees as
appropriate to the conduct of the audit, but the outside auditor shall report to
and be overseen by the Committee.
(2) At the beginning of the annual audit of the Company's consolidated
financial statements, the Committee shall meet with representatives of the
outside auditor and TLF management for the purpose of planning the audit. The
committee shall approve the scope and general extent of the outside auditor's
audit examination, including their engagement letter. The auditors' fees are to
be arranged in conjunction with management and will be approved annually by the
Committee. The Committee's approval should entail an understanding from the
outside auditor of the factors considered by the auditor in determining the
audit scope, including:
Industry and business risk characteristics of the Company;
External reporting requirements;
Materiality of the various segments of the Company's activities;
Quality of internal accounting controls; and
Other areas to be covered during the audit engagement.
(3) The committee shall discuss with the outside auditor the matters
required to be discussed by SAS 61 (Codification of Statements on Auditing
Standards, AU 380), as it may be modified or supplemented.
(4) Upon completion of the independent audit, the Committee shall review
with management and the outside auditors, the changes in financial condition,
financial results and cash flow for the year, prior to the release of annual
financial results to the public.
(5) As part of the annual audit, the Committee shall receive the report of
the outside auditor required by Section 10A(k) of the Securities Exchange Act of
1934 and SEC Regulation S-X Rule 2-07(a) describing:
a. All critical accounting policies and practices to be used;
b. All alternative treatments of financial information within generally
accepted accounting principles for policies and practices related to material
items that have been discussed with management of the Company, ramifications of
the use of such alternative disclosures and treatments and the treatment
preferred by the outside auditor; and
c. Other material written communications between the outside auditor and
TLF's management, such as any management letter or schedule of unadjusted
differences.
(6) The Committee shall determine that the outside auditor was provided
access to all requested records, data, and information. Inquiry should be made
of the outside auditor as to whether there have been any disagreements with
management, which if not satisfactorily resolved, would have caused them to
issue a nonstandard report on the Company's financial statements
(7) In addition to other information described here, the Committee shall
discuss with the outside auditor any relevant recommendations that the outside
auditor may have, including those in their "letter of comments and
recommendations." Topics to be considered during this discussion include
improving internal financial controls, the selection of accounting principles,
and management reporting systems. The Committee should also review any written
responses of management to the "letter of comments and recommendations" received
from the outside auditor.
(8) After completion of the annual audit, the Committee shall meet
separately with each of management and the outside auditor to discuss any
significant difficulties encountered during the course of the audit, including
any restrictions on the scope of the work or access to required information.
(9) Upon completion of the audit, the Committee shall, if it deems
appropriate, recommend to the Board of Directors the inclusion of the Company's
audited financial statements in the Company's annual report on Form 10-K to be
filed with the SEC.
QUARTERLY FINANCIAL INFORMATION
(1) Management shall advise the Committee of all earnings releases and
earnings guidance to the investment community. The Committee's prior approval
of this information shall not be required. The Committee members shall be
furnished a copy of all earnings releases when issued and the Form 8-K filing
made under Item 12 of that form.
(2) Management shall discuss each Form 10-Q with the Committee prior to
filing it with the SEC. In connection with this filing, management shall report
to the Committee that the Company's outside auditor has made the review of the
Form 10-Q required by SEC Regulation S-X Rule 10-01(d).
INTERNAL CONTROLS
(1) At the conclusion of each fiscal quarter, the Committee shall review
with the Company's Chief Executive Officer and Chief Financial Officer how they
are meeting the certification requirements under Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002 and SEC Rule 13a-14, and review their evaluations of
the Company's disclosure controls and procedures and internal controls over
financial procedures.
(2) As part of this review, the Committee shall also consider any disclosure
by the Chief Executive Officer and the Chief Financial Officer to the Committee
and the outside auditors of:
a. Significant deficiencies in the design or operation of internal controls
over financial procedures that could adversely affect the Company's ability to
record, process, summarize, and report financial data and have identified any
material weaknesses in internal controls over financial procedures; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the issuer's internal controls over
financial procedures.
(3) The Committee shall discuss with management from time to time the
Company's performance of its duty to maintain disclosure controls and procedures
under SEC Rule 13a-15. In addition, the Committee shall review the Company's
quarterly disclosure in its Forms 10-Q and 10-K regarding management's
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures, made pursuant to SEC Regulation S-K Item
307.
(4) Upon SEC Regulation S-K Item 308 becoming applicable to the Company
(beginning with the Form 10-K for the fiscal year ending December 31, 2005), the
Committee shall consider
a. Management's annual report on internal control over financial reporting,
contained in the Form 10-K, and
b. The quarterly disclosure regarding changes to the Company internal
control over financial reporting that occurred during the Company's last fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
(5) After the date when the disclosure is first required, the Committee
shall receive the attestation report of outside auditor on management's
evaluation of the Company's internal controls over financial reporting that will
be included with each annual report of Form 10-K the Company files with the SEC
(Item 308(b) of SEC Regulation S-K). The Committee shall review this report,
and, if it deems appropriate, discuss the conclusions in the report with the
outside auditor. Based on the foregoing and any other information it deems
appropriate, the Committee shall determine if the Company's financial reporting
procedures and controls are adequate.
(6) The Committee shall discuss with management from time to time the
Company's risk assessment and risk management policies and their application to
the Company's risks.
RELATED PARTY TRANSACTIONS
(1) The Committee shall review and oversee all related party transactions to
assure that they are lawful and do not operate to the detriment of the Company.
As used here, "related party transaction" shall mean any transaction described
in SEC Regulation S-K Item 404(a) without regard to the exclusion of certain
transactions because of the de minimus amount of the transactions.
(2) Notwithstanding the foregoing, the Committee shall not approve any
extensions of credit or loans to officers prohibited by Section 402 of the
Sarbanes-Oxley Act of 2002.
GENERAL
(1) The Committee shall establish and review procedures for the receipt,
retention and treatment of complaints received by the Company from any source
regarding the accounting, internal accounting controls or auditing matters, and
the confidential anonymous submission by employees of concerns regarding
questionable accounting, internal controls or auditing matters.
(2) The Committee shall inform the Board of Directors, through minutes and
special presentation(s) as necessary or appropriate, of all material facts in
the course of performing its duties.
ANNUAL REVIEW
At the conclusion of each of the Company's fiscal years or immediately after the
end of the fiscal years prior to the beginning of the audit of the Company's
financial statements, the Committee shall conduct a review of this Committee
Charter to confirm that it is adequate for its purpose and conforms to the
requirements imposed by the Amex Company Guide, the Securities Exchange Act of
1934, the Sarbanes-Oxley Act of 2002 and rules of the SEC. If the Committee
determines that any changes are necessary, it will recommend appropriate
revisions to the Board of Directors.
MEETINGS
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The Committee is to meet at least once during each fiscal quarter at times
designated by the Committee Chairman and as many times as the Committee deems
necessary. The committee shall meet periodically with management and the
outside auditor in separate executive sessions.
ATTENDANCE
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A majority of the members of the Committee present at meetings in person or by
telephone shall constitute a quorum of the Committee needed to transact
business. As necessary or desirable, the Chairman may request that members of
management and representatives of the outside auditor be present at meetings of
the Committee.
FUNDING
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In adopting this Audit Committee Charter, the Company's Board of Directors
authorizes such funding by the Company as the Committee determines necessary or
appropriate for:
(1) Compensation of the outside auditor for preparing or issuing an audit
report or performing other audit, review or attest services for the Company;
(2) Compensation to any separate legal counsel or other advisors employed by
the Committee; and
(3) Ordinary administrative expenses of the Committee.
MINUTES
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Minutes of each meeting are to be prepared and sent to Committee members and TLF
Directors who are not members of the Committee. Minutes will be sent to the
Corporate Secretary for permanent filing.
INTERPRETATION
--------------
This Audit Committee Charter and the duties and responsibilities of the
Committee shall be interpreted in a manner consistent with the requirements of
the laws, regulations and listing requirements listed at the beginning of this
charter, as they may be amended from time to time.
PROXY CARD
REVOCABLE PROXY
THE LEATHER FACTORY, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) Robin L. Morgan and William M. Warren,
and each of them, proxies or proxy of the undersigned with full power of
substitution and revocation, to act and vote all of the undersigned's shares of
The Leather Factory, Inc. common stock, with all the powers that the undersigned
would possess if personally present, at the Annual Meeting of Stockholders of
The Leather Factory, Inc. to be held on Wednesday, May 26, 2004, in the Hall of
Fame Room, Wyndham Hotel, 1500 Convention Center Drive, Arlington, Texas at
10:00 a.m., Central Daylight Time, and any and all adjournments or postponements
thereof (the "Annual Meeting"), including (without limiting the generality of
the foregoing) to vote and act as follows:
1. Election of eight directors.
FOR the nominees listed below WITHHOLD AUTHORITY
(except as indicated to the contrary below). to vote for nominees listed below.
SHANNON L. GREENE MICHAEL A. MARKWARDT T. FIELD LANGE RONALD C. MORGAN
JOSEPH R. MANNES MICHAEL A. NERY H.W. MARKWARDT WRAY THOMPSON
Instructions: To withhold authority to vote for any individual nominee or
nominees, write their name(s) here.
________________________________________________________________________________
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE NOMINEES SET FORTH
ABOVE
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting.
This Proxy will be voted at the Annual Meeting or any adjournments or
postponements thereof as specified. IF NO SPECIFICATIONS ARE MADE, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF DIRECTORS. This Proxy hereby revokes all
prior proxies given with respect to the shares of the undersigned.
Please complete, date, sign and mail this Proxy promptly in the enclosed
envelope. No postage is required for mailing in the United States.
Dated: _________________________________, 2004
____________________________________________
Signature(s)
____________________________________________
Signature(s)
IMPORTANT: Please date this Proxy and sign exactly as your name appears to
the left. If shares are held by joint tenants, both should sign. When signing
as attorney, executor, administrator, trustee or guardian, please give title as
such. If a corporation, please sign in full corporate name by president or
other authorized representative. If a partnership, please sign in partnership
name by authorized person.